Non-party costs order made against directors of an insolvent company: Re MPB Developments Limited

Re MPB Developments Limited [2025] EWHC 1291 (Ch)

It is often said that non-party costs orders are to be regarded as “exceptional” orders.

But this only means that a non-party costs order is not made “in the ordinary run of cases” and the only immutable principle is that the jurisdiction must be exercised justly: MPB Developments at [13].

In MPB Developments, the applicants successfully obtained a winding up order against the company on the (unusual) basis that the company was balance sheet insolvent: see [2025] EWHC 198 (Ch). They then sought a non-party costs order against the directors of the company that had caused it to defend the winding up petition, in circumstances where the company would not be able to pay the costs of the petition in addition to the petition debt of £57.2 million plus interest.

Where a non-party costs order is sought against a director or shareholder of an insolvent company, the relevant principles are set out in the guidance of the Court of Appeal in Goknur Gida Maddeleri Enerji Imalet Ithalat Ihracat Tiracet ve Sanayi AS v Aytacli [2021] 4 WLR 101 at [40] – [41]. The touchstone is whether the director causing the company to defend the petition was the “real party to the litigation”. That may be demonstrated by showing that:

1. The director was seeking to benefit personally from the litigation; or
2. There is some other reason why it would be just to make a non-party costs order, usually found in evidence of impropriety or bad faith on the part of the director in connection with the litigation.

In the MPB Developments case, Mrs Justice Joanna Smith found that:

1. The directors were acting in their own interests rather than in the interests of the company by causing the company to defend the Petition, including by seeking to leverage a settlement agreement that was in their personal interests and by continuing to receive their directors’ salaries whilst the litigation was ongoing.
2. The directors acted with impropriety, at least in the sense that they were pursuing a highly speculative defence of proceedings when they had no genuine belief in the solvency of the company.

The directors of the insolvent company were therefore found to be the “real parties” to the litigation and the Court made a non-party costs order.

The MPB Developments judgment demonstrates that the non-party costs jurisdiction will be exercised in appropriate cases. Parties litigating against insolvent companies should carefully consider if this provides a route to successful recovery of costs against those controlling the company. Consideration should be given to this possibility at an early stage of the proceedings as the non-party should ordinarily be warned of the likelihood of a non-party costs application at an early stage before the main trial.

Tim Matthewson was instructed by Kingsley Napley LLP to act for the successful applicants.

Read the full judgment